Any difference between buying a few shares of expensive stock or a bunch of cheap stock

Question

I don't have a ton to invest. I have $1,000 to put into a stock and I'm eying 3 of them. One is currently trading at ~$100/share, another at ~$260/share and another at ~$25/share. So I could get ~10 shares of the first, a bit less than 4 shares of the second or 40-ish shares of the third.

My question is, would there be any benefit to buying one or the other based on this? Is it better to have a bunch of shares or not?

I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure.

Opinions?

Thank you!!

Answer 1

There is no difference between more shares of a relatively cheaper stock and less shares of a relatively more expensive stock. When you invest in a stock, the percentage increase (or decrease) in the share price results in gains (or losses).

This is a fundamental concept of investing. Your question suggests that you would benefit from further research before investing your money. Trading real dollars can be difficult without a strong understanding of the principles involved. Investing your money without a good knowledge base will likely be stressful and could have a discouraging effect if it doesn't go well.

Before you open an investment account, read up on investing fundamentals, particularly mutual funds as those can be a great place to start as a new investor. There are many sources of information including books, websites such as http://investor.gov/investing-basics and this website. Don't skip the sections on taxes, as those matter just as much and sometimes more than the simple buying and selling. You might look at tax advantaged accounts, such as 401k's, IRA's, etc. It shouldn't take long but it will be one of the most important things you do as a beginning investor. Everyone has to start here. Understanding the vocabulary and concepts will likely save you time and money throughout your investing life.

Answer 2

Unless your brokerage will sell you fractional shares, the most obvious difference (without us knowing the actual identify of the companies) is that with the $260 one, you will have 3 shares plus you will have $220 minus commission left over that you wanted to invest but weren't able to simply because of the mechanics of long division.

You could put that $220 into one of the cheaper stocks, but now the multiple commissions will start to eat your returns.

My personal opinion is you should go for a low cost index mutual fund or ETF, and wait to pick individual stocks until you have more than $1000 to work with (and even then, probably still go with the low cost index fund)

Answer 3

You are correct in thinking actual number of shares do not matter, the value is the value.

However there are cases where share price does play a role. Berkshire Hathaway for example has not split because Warren Buffet believes it has cut down on the liquidity of the stock, as well as attracting investors with an eye for the longer term.

There have also been things written on the psychology of a share price. For example, some people are attracted to shares that split, because it reflects a company is growing.

Answer 4

I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure.

You're correct. Share price is meaningless.

Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other.

You should not evaluate an investment decision on price of a share. Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price.

Answer 5

Open Google finance and divide the Market Capitalization by the total price. That will give you the total number of shares outstanding. Now see the number of shares you could buy for $1000(40 shares of $25 each or 10 shares of 100 shares each). Now divide the number of shares you own, by the number of shares outstanding in the company and multiply it by 100(i.e (Shares you own/shares Outstanding) * 100). That will give you the percentage or stake of the company you own(With $1000, don't expect it to be a very large number). Now ask your self the question, Is it worth it if I can buy x % of this company for $1000? If the answer is yes, go ahead and buy it.

To answer your question in short, NO! it does not matter whether you buy 10 shares for $100 or 40 shares for $25.

Cheers

Answer 6

As other answer have pointed out, in theory it does not make a difference if you have 5 shares at 20$ each or a single share at 100$. However, in practice there is one important difference if the price of a share is very high compared to your budget: fractional share ownership or rather the lack of it

Many brokers will only allow you to own full shares, so you run into issues if your budget is 1000$ but the share costs 1100$ as you can't buy it. If a share costs 550$ you can only buy one and have to invest the remaining money somewhere else or at a later time.
Depending on the fee structure of your broker this can make a difference.

Answer 7

if you have 10 shares of $100/each and 100 shares of $10/each, if stock price goes up $1, then in first case you made $10 and in second case you made $100. So big difference! Something else to consider is whether both stocks pay dividends. If both stocks pay a .50 cent per share dividend every year, the $10 stock pays a dividend of $50 per year, while the $100 stock only pays $5. Again, a big difference